Materiality misstatement of accounting information. is a matter of professional judgment
Audit risk The auditor expresses an inappropriate audit opinion when the financial statements are materially misstated, Evidence (more than “per discussion with client)
Major phrases of audit:
Client acceptance/continuance; Preliminary engagement activities; Establish materiality and assess risks; Plan the audit ;Consider and audit internal control; Audit business processes and related accounts; Complete the audit; Evaluate results and issue audit report professional skepticism- attitude that includes a questioning mind and a critical assessment of audit evidence the financial statements ultimately are the responsibility of management the auditor’s responsibility to provide reasonable assurance with respect to errors, fraud, and illegal acts
Preliminary Engagement Activities: 1. Determine the audit engagement team requirements; 2.Assess compliance with ethical and independence requirements; 3.Establishing an understanding with the client: engagement letter, use the work of internal auditor, the role of audit committee.
Types of Audit Tests
1. Risk Assessment Procedures: Used to obtain an understanding of the entity and its environment, including Internal control; (Inquiries of management and others; Preliminary analytical procedures; Observations and inspection)
2. Test of controls: Audit procedures performed to test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the relevant assertion level
3. Substantive Procedures: Designed to detect material misstatement in transaction class and account balance, and disclosure components of the financial statements.
a. Two categories: Tests of details (Substantive tests of transactions; Tests of details of account balances and disclosures); Substantive Analytical procedures
Steps to applying materiality: Determine a materiality